In this week’s podcast we talk about gold’s big boost following the U.S. airstrike that killed Iran’s top general, Qassem Soleimani… and what’s next. Extreme Value Editor Dan Ferris shares why he’ll be surprised by truly big moves in gold this year.
Our special guest, Austin Root, Portfolio Manager of Stansberry’s Portfolio Solutions stops by the podcast to share his experience about working for three hedge funds Porter Stansberry considers the best in history. Listen now!
Editor of Stansberry Portfolio Solutions
Austin Root is editor and portfolio manager for the Stansberry Portfolio Solutions products. He is also director of research and director of corporate development for Stansberry Research.
NOTES & LINKS
5:52: Dan visits the latest proclamations of Goldman Sachs analyst “permabull” Abby Joseph Cohen, whose blithe dismissal of a possible recession is yet another reason for investors to keep their guard up.
8:01: Gold’s had a great run lately, up 18% in 2019 alone – and thanks to the spike in prices after General Soleimani’s death, it’s now “within spitting distance of $1600.” Here’s why Dan will be surprised by truly big moves in gold this year.
18:44: Dan introduces today’s podcast guest Austin Root. Before joining Stansberry, Austin co-founded and ran North Oak Capital, a New York-based hedge fund with a strategic investment from Julian Robertson’s own Tiger Management, where he generated positive returns each year while exceeding investment benchmarks.
22:09: Dan asks Austin about his time at SAC Capital, Tiger Management, and Soros Fund Management, the three funds Porter considers the best in history. “I’ve met a few rock stars in my life… tell me about this, did you meet Steve Cohen and George Soros and hang out with them?”
24:32: Austin tells of how legendary fund manager Steve Cohen was “the master at finding out what the most important thing was” of any idea or thesis presented to him.
30:21: Austin explains how buying low and selling high and focusing on great companies isn’t all a hedge fund needs to do. Here’s how he learned to promote his work to grow assets under management to over $100 million, and the dangers of “50/50 partnerships.”
37:10: Portfolio Solutions can be a godsend to subscribers of five or six publications at Stansberry wondering how to use all of the research – here’s how Austin’s service delivers a “have your cake and eat it too” portfolio.
43:48: Austin explains why he’s preparing to offer not just Portfolio Solutions, but The Capital Portfolio and Defensive Portfolio at a bundle price starting next Tuesday. “The Capital Portfolio was up 42% in 2019… we’ve done really well but frankly we don’t have enough folks.”
1:10:23: Paul E. writes in with observations on the minimum wage increases in Seattle to $15/hour and the effect it’s had on restaurants in the area and the first-ever inflation from labor, rather than food, costs.
Announcer: Broadcasting from Baltimore, Maryland and all around the world, you’re listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here is your host, Dan Farris.
Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I’m your host Dan Ferris. I’m also the editor of Extreme Value, a monthly service published by Stansberry Research. Really cool interview today, guys. It’s my Stansberry colleague, Austin Root. And Austin has worked for these huge-name people in the hedge-fund industry, and now he works for us, and he’s been here for several years. He’s kind of under the radar, but we’re going to learn a lot more about him and his work today.
Very interesting stuff, can’t wait to get to it, but first, as usual, I have a few thoughts to share. The first thing I want to share is my favorite Christmas present that I got. My wife gave me – she knows me so well. She gave me this thing. It’s the periodic table of elements, but it’s all in this glass thing. And it’s got a little piece of every element in the periodic table, including all the radioactive ones, and the gasses are like a little gas bubble inside a piece of resin, and it’s got all of them, everything, gold, whatever, everything. Helium, all of them.
And I just think it’s the coolest thing in the world. I own every substance known to man. It’s really cool. And it comes with this little certificate of authenticity so that you know they’re certifying legally, I think, that you own every element in the periodic table. Really cool. Anyway, I just wanted to mention that because it’s a lot of fun. And it’s kind of a sort of like a learning tool I would guess, just to have that nearby and refer to it now and then, and we like learning tools around here.
All right, so let’s just talk a little bit about a couple of things before we talk with Austin Root today. Earlier this week I wrote a Digest that went out to all the Stansberry readers, and I just want to touch on a couple of quick points from there, and the main one is that the stock market went up 29% last year and people are feeling very optimistic overall. And with that comes what I would call like kind of silly sort of predictions and prognostications by all the folks on Wall Street.
And I swear to you, one of them is channeling Irving Fisher. Irving Fisher, of course, was the economist who said – I think by my date right, October 16, 1929, that the U.S. stock market had reached a permanently high plateau. He used those three words, permanently high plateau, to describe the stock market. And of course the week after that was the huge crash of 1929, and it started the Great Depression. So he was a little bit off, and the Dow Jones bottomed out like 80% lower in 1932. So he was a little bit off on that prediction.
And frankly, is there any more dire forecast economically or financially than an economist saying everything is great, right? Is there anything worse? So there’s these two Goldman Sachs economists who are I think are channeling Irving Fisher. And they recently said that the U.S. economy – here’s the quote. They said, “The U.S. economy is structurally less recession-prone today.” Structurally less recession-prone.
I mean, look, if I were William Shakespeare I could not find a better historical rhyme with Irving Fisher’s permanently high plateau. Permanently high plateau. Everything is going to be good for ever. Structurally less recession-prone. No recession coming anytime soon.
And, of course, they did this thing that they always do on Wall Street where they kind of just in passing they mention the risks so that later on they can come back when their prediction goes wrong and say, “Well, we mentioned the risk.” And so they mentioned it very briefly. They said, “The prospects for a soft landing look better than widely thought.” A soft landing meaning, “Well, if we do get a recession or a bear market or something, it won’t be that bad, right?” It sounds very pleasant, right?
So I don’t know. What does this mean? Does this mean people will be happy about losing their jobs because it’s a soft landing? Does it mean that everybody is so rich today from the stock market that when they get their portfolio cut in half in the bear, hey, they’ll still have lots of money so they’ll feel great? Soft landing, I don’t know.
And you probably don’t remember, this same sort of thing came out of Goldman Sachs in December of 2007. And yes, I hear you. I’m cherry-picking. I have confirmation bias, whatever. My data science is not good. Whatever you want to tell me, I cop to it. I don’t really care. These are just anecdotes. And I think they’re valid because if the data people were worth anything they could predict things themselves, and they can’t either, so whatever. It doesn’t do you any good to be such a snit about data.
Anyway, December 2007, Barron's published this article that quoted Goldman Sachs strategist Abby Joe Cohen. You remember her? Permeable, right? She said, “We expect the U.S. economy to show the strains of the deflating housing market and credit market disruptions in early 2008,” right? That’s the passing mention of the risk. Blah, blah, blah, blah, blah. Recession likely will be avoided due to strength in exports and capital spending by corporations and government.
In the same article they surveyed 12 – they called them seers. Seers, like psychics. That’s the term they used in the article, which I found kind of hilarious, but they meant economists, analysts, whatever. So they surveyed these 12 people at the same time for the same article in 2007, and they predicted the S&P 500 would rise in 2008 between 3% was the lowest, and 18% was the highest, and it actually averaged out to about 10%.
So a little more than a year after all this, of course, the index was down like 38%. The worst annual performance since the Great Depression. Oh, and it was the beginning of what? A pretty fricking hard landing, which we call the Great Recession. The great financial crisis. The GFC, right? So they were all saying the same thing, right? Same as Irving Fisher. No recession, no hard landing, right at the moment before it all fell apart.
And, you know, what are these two guys from Goldman Sachs doing? They’re saying, “Hey, U.S. economy structurally less recession-prone, and there’s better prospects for a soft landing than widely thought.” So you can’t make this up. It’s just it’s poetic. So I’m just going to leave it there. I actually wrote a bunch of other things in this same general mode in the Stansberry Digest earlier this week, but that was the one that I thought was really just too poetic not to repeat.
The other thing we need to talk about, besides Wall Street economists poetic predictions, is gold because gold had a big run up recently. It was like down in the 1,460s. And then all of a sudden January 3, U.S. military did a drone strike on a convoy near the Baghdad International Airport killing this guy, Maj. Gen. Qassem Soleimani, and he was, among other things, he’s the commander of this designated terrorist organization called the Quds, Q-U-D. Quds, I think that’s how you spell it, Force. I think that’s how you say it. That’s definitely how you spell it. So he was a designated terrorist and they wanted to get rid of him.
Personally, I think it’s a mistake to run around the world whacking hornet’s nests. If your kid actually hit a real hornet’s nest with a baseball bat and got stung all over, I bet he’d learn his lesson and not do it again. But even after like the first World Trade Center attacks, and then 9/11, the attack on the USS Cole, and not to mention plenty of other stuff in other Western countries, we don’t seem to have learned our lesson.
And you can tell me, “Well, these are bad people, and we’re going after the bad people.” Well, you know, as far as they're concerned bad is in the eye of the beholder, and we look pretty bad to them so now they want to kill us. And these are Shiites. They’re extremists. They value martyrdom. So this guy is a martyr now. Before he was just a general, now he’s a martyr. So we keep turning these people into saints and getting surprised when it comes back to bite us. I don’t know.
Anyway, the price of gold responded by surging. Like I said, it was in the 1,400s and then wham, as high as 1,588 per ounce, right? Spitting distance of $1,600. And as I’m speaking to you right now, it’s I think it’s around 1,570 the last time I checked. I don’t really watch it that closely all the time, but here’s what I think will happen. I think one of two scenarios is probably going to happen. Either gold will hold above this 1,550 level and maybe go sideways and then higher, or maybe just go higher from here, or it will correct back down to I’m thinking maybe the low 1.500s and kind of hover just above 1,500, go sideways, whatever, bounce around, and then surge higher maybe above 1,600 and wind up at the end of the year 1,600, 1,700, I don’t know.
And like I said, I stick to what I said last week, right? I’ll only be surprised by really big moves in gold this year, like down into the like 1,200s, or up to new highs above 1,900. Gold is volatile. So only the really big moves ought to be a surprise to anyone really, right? Yeah. So a move like we saw in the past few days, it’s nice for people who own gold, but not a big surprise.
I want to talk about one more thing before we get to our interview with Austin Root. I want to talk about reading and books. Something about taking a little bit of time off over the past – over the holidays and having plenty of Baileys and coffee all the time. And Baileys and Frangelico too is good stuff. I’m sorry, coffee and Frangelico.
Having plenty of alcohol in my caffeine kind of helped me relax and think about life a little bit. And I stumbled onto an article called Everything I Know About Reading Was Wrong, Everything I Knew About Reading Was Wrong. It’s by a guy from Twitter named Johnny Uzan, and he made a lot of good points. The article is actually over a year old, but he talked about a podcast interview with one of our previous guests, Shane Parrish, who was interviewing a fellow named Naval Ravikant.
And Naval, N-A-V-A-L, Ravikant, R-A-V-I-K-A-N-T, is a really smart guy and has some great ideas about reading that I must pass along, and they were summed up in this article called Everything I Knew About Reading Was Wrong. And look, I think I can sum it up just in one idea, and the idea is read what turns you on, and read anything and everything that turns you on.
And if you’re reading a book and you start at chapter one and you get to chapter three and you’re like, “Well, this isn’t turning me on anymore,” put it down. Maybe you’ll come back to it later, maybe not, but put it down and find something else to read that turns you on. And even if – I will go this far, and Ravikant said this in the interview, which is a great interview. It’s two hours long and it’s over on the Farnam Street Blog with Shane Parrish. And I definitely recommend it, but there’s a lot in two hours. A lot more than just about reading in two hours.
But he said he used to read like kind of fluffy stuff, like garbage, like Pulp Fiction and whatever, People Magazine. I don’t know, whatever was garbage to him, and really fluffy stuff. But it turned him on and he kept reading, and reading, and reading, and eventually he wanted better stuff. And now he’s a really bright guy who runs a company that serves private investors, venture capital investors, and just his reading is voracious. And one reason it’s voracious is because he just reads whatever turns him on.
And I've sort of always done this, but I’ve always carried that guilt feeling around when I didn’t finish a book. I’m never going to have that again. I’ve finally – this article helped me finally get rid of it, and I encourage you to do the same. And my wife is always saying, “How can you read 15 books at once,” and I always felt a little guilty about it. I don’t feel guilty anymore. That’s the way you do it. That’s the way I’ve always done it, and that’s the way you do it. Read what turns you on. And if you start 15 books and you finish one of them, then that’s the way it goes. And you learn because you read what turned you on.
And in that spirit, I just wanted to share with you the – I don’t know how many are on – are in this list. I think there’s about 20 of them here that I’m kind of fooling around reading little bits of, and a few of them that I’m genuinely into. One of them is by the guy who created the Dilbert comic strip, Scott Adams. It has nothing to do with Dilbert or business or anything. It’s called God’s Debris: A Thought Experiment. It is this philosophical journey that will twist your mind. It’s not very long, but it’s very deep, and it’s very enjoyable, very readable. It’s just I can’t put it down kind of a thing, and it’s like it’s not even 200 pages. It’s really cool.
Another one is a book called Range by David Epstein, which not one, but two listeners recommended to me in the feedback recently. And it’s just about – the subtitle is Why Generalists Triumph In A Specialized World, and there’s a great anecdote in the beginning of it. Well, two of them really.
One is about Tiger Woods. He started out he was literally playing golf before he could walk, and his father was teaching him golf before he could speak. And he was winning tournaments when he was like four or five years old. I think he won the 12 and under, or 10 and under tournament or something. Incredible, right? We all know that story.
And then there’s the story of Roger Federer who’s the opposite. He was all over the map. He played all kinds of different sports, and his parents weren’t really especially supportive, and he wound up as one of the best tennis players who has ever lived. And he’s the generalist, so that’s the kind of person that Epstein focuses on in the book.
And it’s kind of like – it’s one of the listeners who wrote in about the book said, “It’s the opposite of this idea of 10,000 hours of practice that Malcom Gladwell wrote about,” which I think is bologna, too, by the way, and I put well more than 10. I probably put 20,000 hours or more, or maybe more than that into playing the guitar in my life. And I can tell you that at any given moment I’m working on 20 different pieces. It’s always been that way, it always will be that way. That’s just the way it worked because you have to play whatever can get onto your fingers the fastest, and then you go after the tough spots.
Anyway, same with reading. Just go after what turns you on. But I’m reading Mastery by Robert Green. The Subtle Art of Not Giving A F Word by Mark Manson, which is an excellent book. Really fun read. Prisoner’s Dilemma by William Poundstone. Poundstone has a bunch of good books. I have that one, I have Rock Breaks Scissors, which I really I’ve just sort of dabbled in that a little bit. And another book called Priceless.
And of course I’m reading – made a pretty good dent in The Trouble With Prosperity by James Grant. Probably the greatest financial writer of our time. A book by a guy named Adam Kucharski called The Perfect Bat, which the subtitle just intrigued me, How Science and Math Are Taking The Luck Out Of Gambling. I don’t even believe that. That’s why I had to read it.
Another book I’ve mentioned before, The Quants, Scott Patterson. And I have some things that I haven’t even touched yet, Robert Cialdini, Persuasion. He’s the guy who wrote Influence, which is a book Charlie Monger recommends all the time. The Code Book by Simon Sing is all about quantum cryptography.
I was on an airplane next to a former navy cryptologist. Cryptographer, cryptologist, I don’t know which. One of those things. A person who does cryptography. And he was telling me all of this stuff that was like about China and other countries, and it was fascinating all these things he learned over his career. And I said, “Are you allowed to be telling me this?” He said, “Yeah, don’t worry.”
Zero To One by Peter Teal is one of the best books on entrepreneurship you could ever read. I’m making a dent in that now, and a couple other things, but you get the point. I’m just reading whatever turns me on. And sometimes you can go through the table of contents and if something sounds good just jump to it. And if you read that whole chapter and the thing turns you on, then maybe you want to read the whole book. But if it doesn’t maybe you want to put it down and move on. That’s all I have to say about reading right now, and I think that’s important. Read what turns you on.
Okay, let’s talk with Austin Root. OK, it’s time for our interview. Today’s guest is Austin Root. Austin is the editor and portfolio manager for the Stansberry Portfolio Solutions Products. Prior to joining Stansberry, Austin was a partner and portfolio manager at DF Denton Company, a Baltimore based investment advisor focused on owning high quality growth companies.
Before that, Austin co-founded and ran North Oak Capital, a New York based hedge fund with a strategic investment from Tiger Management. Tiger Management, Julian Robertson, one of the most famous hedge fund guys of all time. North Oak produced strong investment returns over the life of the firm, generating positive returns in each year, and for every investor exceeding hedge fund benchmarks. Nice.
Austin previously held senior investment positions at SAC Capital Advisors, and Soros Fund Management. SAC, sound familiar? Steve Cohen, one of the biggest ever. Soros, you’ve heard of him. Pretty cool. Austin has experience investing across asset classes including public equities, derivatives, venture capital, private equity, and fixed income securities. Austin Root, welcome to the program sir.
Austin Root: Thanks so much, Dan. Thanks for having me. It’s a pleasure.
Dan Ferris: OK, so I’m interested first in when you got started, when you first knew that you were going to be a professional investor one day.
Austin Root: Yeah, so I started being interested in the stock market back in college, and I took an investment course from John Griffin. John actually was a Tiger Management guru. He was the right-hand man for Julian Robertson. He was – I went to school undergrad at UVA, University of Virginia. And John both taught a class there, and then also endowed the school with a amount of money, but he had one criteria. It was that students run that amount of money and manage it like they would – like you would a professional hedge fund And so I applied to be one of the portfolio managers there and was lucky enough to get that honor. And this was in the late ‘90s, so really everything that we were picking was gone up. It was – we were tech heavy and tech focused, and it was a fun time to be learning about the markets.
But really tried to create investment rationales and investment theses, and then seeing them put to work with real money was just an eye-opening experience for me. And that was the first time that I said, “Gosh, this is what I’m going to do for my career.”
Dan Ferris: That’s so cool. Most people don’t start out by getting their hands on real money. That’s really cool.
Austin Root: Yeah, and it was nice that we were able to actually then provide money. We donated some money back from some of the gains back to the university, so it was pretty neat.
Dan Ferris: That is very cool. So I can’t not ask you about firms like – well, you already mentioned Tiger Management, SAC Capital Advisors, and Soros Fund Management. I mean like I’ve met a couple of actual rock stars in my life, but you’re like the next best thing. Tell me about some of this. What was it like? Did you meet Steve Cohen and Soros and like hangout and drink with them?
Austin Root: Yeah, so yes on Steve. I worked – when I pitched my ideas I pitched them directly to Steve, so that was a really incredible experience. He had a desk in the middle of the trading floor, and when you came up with an idea – first off you wanted to make sure it was a rock solid idea, but when you came up with it you go to his desk. He had at least 12 monitors, so he would turn from the monitor to listen to you, and you had about 60 seconds to catch him. And if you didn’t in that amount of time he would just turn right back to his monitors and start trading.
So I witnessed this a couple of times before I tried to pitch my own idea. But then we also – he’s an incredibly nice guy. The perception of him is a little bit misguided in the public perception. He’s an incredibly nice guy, and we did have off sites down to Florida where we drank some beers together, so I enjoyed that.
For Soros I worked within the private equity group, so we did have public market investments, including Jet Blue for example. We were the largest and first investor in Jet Blue, and held that through being a public company, but most of my work was in the private equity group. And so George would opine in some of our biggest investments, and I met him and spoke with him here and there, but I wouldn’t say he was a close friend.
Now his son, Johnathan, was part of the private equity group. But they were really neat experiences and I feel blessed to have been fortunate enough to have those investment experiences.
Dan Ferris: So I mean maybe this goes without saying, but I still have to ask it. Would you say that working for people like that gives you some kind of advantage? Like did you learn really super valuable things that you feel like you could not have learned anywhere else?
Austin Root: That’s a great question. I think you can probably learn these lessons anywhere, but I was with my feet to the fire learning these. You know, I think each of the gurus I’ve worked with I’ve learned like a special lesson from each of them. For example, Steve Cohen was the absolute master at finding out what the most important thing was. He would cut to the chase and he listened to your thesis, and he would then just know what was going to move that stock. Okay, this is what you focus on.
George Soros, when he talked about things in our investment committee meetings it was big picture. He was super plugged into the macro and the secular trends, and the big picture. Does this make sense thematically with all of his macro expertise?
Julian Robertson, for example, was uniquely gifted at both of those things. Some of his best trades were, as you know, were around the housing market and being bearish housing, but at the same time he was really good at understanding the fundamentals of any one individual investment.
So I think you can learn that stuff a lot of different ways, and I think for most people the best way to do it is to, even if you’re doing it with practice money, actually making these trades, creating your investment theses, and working it out. You’ll learn more when you own a stock. You probably know this, Dan. You learn more about something when you own it or recommend it than you do if you just kind of watch it.
Dan Ferris: Absolutely. When I’m really interested in something that I want to put my own money into I just buy a little bit of it, regardless, just to feel like I have some skin in the game, and then I can get more excited about learning more about it. So yeah, absolutely.
And once we recommend the stock, and once we commit to recommend it even before we actually recommend it, you’re focused in a way that you otherwise would not be. It’s like it’s that skin in the game thing, right? It’s just you’ve got to have something on the line to really be motivated.
All right, so that’s just cool. I just I mean I’m only human, so when I hear about like Steve Cohen, George Soros, I’m as starstruck as anyone. I just I have to admit that. And if I met them I’d be like, “Wow.” I wouldn’t be able to have an intelligent conversation with them mostly because they’re – not just because they’re a million times smarter than me, but just because I’d be so starstruck. I’d just be wanting them to like sign my arm or something. I don’t know.
Austin Root: Well, you know, I felt that way. I appreciate that and that’s kind, but I would also say I felt that way about coming to work here. I’ve loved reading your research, some of the other gurus that we have here at Stansberry. I mean it’s an incredible group of – market wizards isn’t the right term, but incredible group of investors and research analysts from Porter Stansberry to Doc Eifrig, to Dan Ferris, to Steve Sjuggerud. It’s an incredibly eclectic and well-rounded, and well-researched group.
Dan Ferris: Well, Austin, why didn’t you say something. I’ll sign your arm if you want me to. Come on.
Austin Root: It’s a done. Sounds good.
Dan Ferris: Yeah. All right, next time I’m in Baltimore I’ll bring a Sharpie or something. So what I want to know next is, tell me a little bit about – speaking of experiences that for which there is no substitute, like getting some skin in the game, you co-founded and ran this firm North Oak Capital. There’s nothing like – I’ve tried to start little businesses a couple of times in my life, and boy, it just beat me over the head every single time and taught me things I couldn’t have learned any other way. What were your big takeaways from co-founding and running North Oak Capital?
Austin Root: Yeah, so I think the big takeaways are you can be good at certain parts of the business and still not succeed. So for us, for example you mentioned in the intro, we did have pretty darn good returns over the life of the fund. But the hedge fund business is a tough business, so you need to be able to standout. We didn’t have any one homerun year.
We just had steady returns every year. And for in particular in 2011, most of the hedge fund industry was down with returns given that the international markets were broadly down, and the S&P and U.S. markets were just barely up. I think the Dow maybe even have been down. But we didn’t have – we were up but we weren’t up 50%.
So one lesson was it takes a little bit of luck, but another lesson was the one thing that we didn’t do very well was market the fund. So is it Howard Marks that says the investment business is both, it’s buying low and selling high, but it’s also about gathering assets, and we didn’t do that very well, so even with the might of Julian Robertson behind us.
You know, we grew the fund to just about 100 million under management, and while that was good as a business it wasn’t a huge homerun business. And going with that I had – you mentioned I was a co-founder, so I had a partner, and my partner and I saw eye-to-eye on I’d say 98% of the investments and the investment rationale, but not 100%.
And so we were 50/50 partners, and sometimes that made the investment portfolio management a little bit challenging. If I were to redo, if I were to start a business again, I think partners are great, but there should be someone that has control. Should be someone that has 51% at least so that when the rubber meets the road you can make a decision decisively.
And frankly, we had potential investors that had that concern and said, “Well listen, you guys are doing great. Your returns are solid, but what happens when they’re not? Who is going to be deciding that?” And we did have – we both came from a private equity background, so we did have mechanisms in place, and more of an investment committee type of approach, but I take the criticisms to heart. I think long-term it does make sense to have kind of one person that has the ultimate say.
Dan Ferris: Yeah, that makes a lot of sense. You know, the rule in 50/50 partnerships is they always break up, right? It’s just the way it goes.
Austin Root: Yeah. I’ve seen a lot of them have.
Dan Ferris: I have to say, that doesn’t surprise me. I’ve heard that a lot this thing where people are good investors, but then the marketing side basically. The asset gathering side doesn’t work out well for them, or the opposite. Because let’s face it, they’re opposite. The people who do those things well seem like motivated oppositely in life. They’re just different sorts of folks.
Austin Root: Yeah. Well, it’s funny, we ended up closing down the fund not for the traditional, “Gosh, this business isn’t working properly.” It ended up being for family reasons. So my partner was single and focused solely on the fund, and I was married and our third child was on the way, and my wife wanted to focus more on that. And running a business is an all-encompassing time consuming and stress – pretty stressful thing.
So I got an offer to become a partner in DF Dent, which was a local Baltimore firm, and that just seemed to make more sense from a family perspective. And so sometimes you make choices not necessarily for financial reasons.
Dan Ferris: I can’t believe I never asked you this before. Are you from Baltimore?
Austin Root: No. My wife is from Delaware, so we were trying to get close to one side of family, and I’m from Ohio. And so we were kind of poking around and this is where we landed.
Dan Ferris: I see. And then – so then you went from Dent to Stansberry. What was the – was that like I need to get away from Dent, or I really want to go to Stansberry, or a little of both?
Austin Root: Yeah, so longtime Investor Hour podcasts listeners will know Country Club Guy. Well, when I was running my hedge fund Country Club Guy was the trader for us when we traded through a local Baltimore firm called Steve Flanicolas. And so Country Club Guy then started working here at Stansberry, and but prior to that maybe 10 years ago he introduced me to Porter.
And so Porter and I become friends and that’s when I started reading all of your research, including yours, Dan, and I got a real appreciation for the high-quality independent insights that are being produced at Stansberry Research. And, gosh, Porter is a pretty convincing guy. It took a number of years, but he first wanted me to come and run Stansberry Asset Management, and that didn’t seem appropriate at the time.
But eventually I did get excited about the opportunity, and that’s what I’m actually doing now. So Porter had this great idea with Stansberry Portfolio Solutions, which was, “Okay, let’s take all of our great research and solve the one criticism that we have received from subscribers, which is, gosh, there’s so much good things that you’re providing us. Can you help me organize it a little bit, or how would you run money for me?” And so we’ve created Portfolio Solutions to take that guess work out of it.
And so Stansberry Portfolio Solutions is a curated approach to taking the greatest hits from across all of Stansberry Research and putting it into a fully allocated portfolio down to the number of shares based on your goals. Based on your investment goals, we have a different portfolio solution strategy for you.
So Porter suggested that I run that, and so it'd still be like being an investment manager. It’s still running portfolios, but also had the opportunity to work with a bigger team, so we have over 30 analysts as you know, Dan. And then also have an opportunity to meet with subscribers, and maybe do a little bit more writing and talk about some of the attributes of investing that I think are most important.
So ultimately he wooed me, and that was about two and a half years ago, and I’ve been super excited that I made the switch.
Dan Ferris: Yeah, I have to say, for anybody who is like a Stansberry subscriber who’s got lots of our products, I often – or I’ve occasionally said that I thought Trade Stops was the one product absolutely every Stansberry subscriber should have so that they don’t make the mistake of waiting until the bottom to sell out when things are really bad.
But I’m just thinking about it now and I know there are people who they joined the Stansberry alliance, or they have four, five, six, seven different Stansberry products, Portfolio Solutions is like a must have for them because they’re always asking us the questions that you said, “Can you please help me organize this?” And I’m excited. I’ve always been excited about Stansberry Portfolio Solutions.
And I have to say, Austin, this is like Mutual Admiration Society, so to the listeners I apologize if it sounds too Mutual Admiration Society, okay? But it’s the truth. I always thought, “Wow, we have the coolest guy running this. He’s been with all of these big firms, he’s run his own firm. This is really neat.” And it didn’t surprise me that Porter found such a person. He’s well connected, and like you say, very convincing once he gets into you. And the fact that it’s turned out so well doesn’t surprise me either.
So tell me about – you run three strategies, right? Tell me like a little bit about each one.
Austin Root: Yeah, and we actually have a fourth. We talk a little bit less about it, but just quickly as a little bit of a background. We generally think that investors have three goals, and it’s really a function of which ones they prioritize. But if you just think broad brush, the first is long-term capital appreciation as a goal. Second is safe sturdy income, you know, current income. And then third is capital preservation, or protecting that cash or that nest egg that you already have.
So we have a portfolio for all three of those. So for long-term capital appreciation we have the aptly named Capital Portfolio. That’s really focused on long-term growth. It’s the most aggressive of our portfolios. And we’re looking to outperform the market and up markets and perform inline in a down market.
Second, we have income. The income portfolio is focused – we call it our have your cake and eat it too portfolio where we’re focused on getting really strong current income, but also in a way that invest in securities that have some capital appreciation opportunities as well.
And then for that third goal of capital preservation, we have recently created a portfolio called the defensive portfolio. And so this one is for folks maybe that are more in your camp, Dan, that really are a little bit worried about the world, so we’re holding a lot of gold, holding a lot of cash, holding some countercyclical and uncorrelated gems in there. That portfolio has since we’ve created it has done really well, even in an up market.
And then finally, we have our all-weather portfolio. It’s called the total portfolio. So it has, as a goal, all three of those things. This is – you know, Porter helps me with this one, and it essentially is we call it our hedge fund where if we were managing money this is how we would do it. And that’s kind of our more sophisticated of the portfolios, but if you buy – if you subscribe to the total portfolio you’ll get all four.
Dan Ferris: Oh, that’s cool, yeah.
Austin Root: Yeah.
Dan Ferris: Yeah, four. I just I knew about all those, I just can’t do basic arithmetic.
Austin Root: You know, we don’t really talk about the defensive as much because it’s – but and it’s the newest of the four.
Dan Ferris: Yeah, and let’s face it, it’s the one right now the world wants to hear least about.
Austin Root: Yeah, exactly, exactly.
Dan Ferris: But you say you still done well with that even though it’s kind of positioned for bad times, and these aren’t exactly bad times.
Austin Root: Yeah, and it got a little bit of a test. We introduced that portfolio in May of ’19, and from the day that we introduced it until sometime in June the market dropped about 4%, and it was up. It was up almost a percent over that period. So since then as the -
Dan Ferris: Nice.
Austin Root: Yeah, since then as the market has ripped up it has also gone up, but not quite held up with the market. I think since we launched that the S&P is up 15, and it’s up about 13%.
Dan Ferris: Boy, I’m going to troll that thing for ideas.
Austin Root: That sounds good. You know, we definitely have used some of your ideas in there, Dan. And I will say that while the other three portfolios are positioned a little bit more bullish and more – we have a guardedly bullish outlook on the market. We’re still focused on having some portfolio protection in there.
So we know markets correct. That’s just what they do. And even though I probably have more of an optimistic outlook on 2020 than perhaps you do, Dan, we still want to make sure that these portfolios and the subscribers that follow them are protected.
Dan Ferris: Sounds good to me, man. Makes a lot of sense to me. Of course, I mean you already knew that. So a lot of people, listeners to the podcast, like they write in every now and then and they clearly want an actionable idea, right? And they can get three of them for free next Tuesday night can they not?
Austin Root: They can, and they are from our big three gurus. Porter Stansberry, Dr. David Eifrig, and Dr. Steve Sjuggerud are all going to be on a live event with me January 14, 8p.m. Eastern. And in addition to talking about their outlooks for 2020 and beyond, in addition to talking about how we construct these portfolios together as part of the investment committee, and in addition to really just having a chance to see these people, these four live together, on stage together, they each will be providing a actionable idea free just for joining that event.
Dan Ferris: That’s pretty cool. And I have to tell people, you get maybe really one chance a year at the Stansberry conference in Los Vegas to see these guys live on stage. And getting a second chance to see them all live on stage is pretty cool. So you can log into this thing at www.investorhoursps.com, and you go there and it’ll tell you how to participate next Tuesday night.
But, Austin, like maybe you could just kind of characterize this event. Why are you doing it? Why are they doing this?
Austin Root: Yeah, so we’ve had some great returns last year. The capital portfolio was up 42% in 2019, and that is – that’s compared to the S&P that was up about 30%. Even our more safely invested portfolios, income was up over 27%, and the total portfolio was up about 33%.
So we’ve done really well, and we have some subscribers that have followed our advice in those, and have had notified us that they’re doing great and they’re excited, and how much of a godsend really that these portfolio solutions have been for them. But, frankly, we don’t have enough folks following our advice here.
And so we have, as you know, Dan, gosh, 250,000 subscribers to Stansberry products. We only have a fraction of those that have focused in on taking the good advice from our products and putting it into a fully allocated portfolio for all of their investments. And so we want to -
Dan Ferris: Well, that’s a mistake.
Austin Root: Yeah. So we want to provide this opportunity for folks to hear how our gurus are – what they’re thinking about in terms of 2020 and beyond. It’s going to be a very pivotal year with some economic question marks, with political question marks, and frankly, geopolitical, in fact, question marks.
So for us it is the perfect time to be talking more about this. And so it’ll be an opportunity both for existing subscribers to hear how the investment committee is thinking about and wanting to position a portfolio, and then probably more importantly for prospective subscribers to learn what we’re doing and figure out why they should sign up.
Dan Ferris: Yeah, it’s a great opportunity for anybody who doesn’t subscribe to any Stansberry product. I mean you’re going to get three stock picks from the three best Stansberry guys, right? So it’s really great for them. But, wow, I didn’t know that – it surprises me that we don’t have a big percentage of those folks in the portfolio solutions.
Because I mean even if you have like two or three Stansberry newsletters, like at some point you’re just getting all these ideas and you don’t know how much to implement, and how to think about a portfolio of them. Look, when the thing is making 42%, when the market is up 30, there’s something good happening here, right?
Austin Root: That’s right.
Dan Ferris: So, wow. I’m surprised by that. I’m glad we’re doing this then.
Austin Root: Yeah, I think it’s going to be great. And as you know, Dan, we have a couple of your favorite picks in there, so your subscribers need to sign up as well and figure out which ones we have in there and how we have them sized up.
Dan Ferris: Yeah, I mean obviously look, I make no bones about the performance of value overall. And we’ve – in some years I think we’ve done a little worse, some we’ve done a little better than value overall, but we were kind if sideways last year with the market up 30%.
And yeah, that’s tough, but I think even Extreme Value subscribers, to see the Extreme Value ideas in the context of your defensive portfolio, or the total portfolio, I bet it would be like a revelation for them. Because there’s a place for those ideas, but maybe not 100% of your capital.
Austin Root: Absolutely, yeah. And I would just say, you know, we are focused right now on finding companies with four attributes, and some of these are from your letter and your research. But given where we are in the market we are focused on finding companies that have durable franchises, number one. We want businesses with staying power.
Two, we’re looking for companies with above-market revenue growth. So this is we want companies with advantage business models that will be able to compound rapidly. Because, as you know, the world is otherwise starved for growth. So if you can truly grow in a low growth environment there’s something special about your business model.
Three, we’re looking for talented management teams. We want those world class ethical leaders. And important to us, leaders that have skin in the game and have incentives aligned with shareholders. And then four, this is something that you've preached before, Dan, we want high returns on invested capital. We want those companies with thick profit margins that can generate attractive returns on their core businesses, and not just producing returns because of some financial shenanigans or leverage or otherwise.
So, we are stuffing these portfolios with those types of businesses that we feel comfortable and confident in. And part of that is so that if and when, or when we get market corrections we’ll have the opportunity to be more confident with what we own, and maybe even add to some of these positions and be, as Buffet says, greedy while others are fearful.
Dan Ferris: Yeah, those are the ones to do that with aren’t they? The high – the durable franchise, high ROIC, good managements, good growth, all of that stuff in one place. And then there’s a correction, they’re down 20%, you buy more. Those are definitely the ones to do that with.
It’s funny because like in Extreme Value we do look for higher quality companies with most of what we do. We’re looking for a high quality business, but lately I’ve actually been kind of going the other way because I found some things that are so unbelievably dirt cheap. And I think they’re dirt cheap because a lot of people don’t want them right now.
People want growth and they want all of these other things, and those other things can get cheap enough where it’s just kind of silly. So, you find them and add them. You know, they’re not things that you hold forever. It’s harder to do that I admit.
Austin Root: No, you’re right. There’s a place for that. Investing mentor mindset is listen, investing is not a beauty contest. It’s ultimately how much you return. It doesn’t mean that you have to own the prettiest names all the time.
Dan Ferris: Right, and you mentioned Howard Marks before, and he’s a big advocate of this thing. He says, “The market knows companies.” It knows basically all the stuff we’re talking. It knows the franchises and the managements, etc., etc., etc. So the returns get priced in basically, and then at some point they’re so priced in that the returns fall in the future and you have to wait for those opportunities to kind of get back in when they’re down 20%.
I don’t know if I agree with that all the time. I think there are some businesses that are just so good they’re worth more. And guys like me, on the value side, tend to fail to appreciate that. We tend to look at these kind of things you’re talking about that did 40% last year when I went sideways, and we said, “Oh, it’s so expensive.” But it’s expensive because it’s a phenomenal business. And even at 30 times earnings, or whatever number you want to throw out, they’re still a great deal because the franchise is so durable, and the returns are so high, and the margins are so good.
Austin Root: And I want to be clear, we are trying to be tactical. I’ll give you one example. Our best-performing name in the capital portfolio is a name that everyone knows. It’s Apple. But we didn’t own it in 2018 when it was getting a little that out of our _____. The stock is probably up maybe only 20 or 25% from that 2018 high, but we generated more than 100% return on Apple last year because we were tactical.
We waited until the market puked it out on weak iPhone sales that were below expectations. But what we saw was really an incredibly enduring franchise where their ecosystem they’re creating is excellent. So we bought on the lows in January, and it’s turned out really well for subscribers, or at least we recommended the subscribers buy that and it’s turned out well.
So we do want to be a long-term and focus on owning great businesses, but we also want to be tactical as well.
Dan Ferris: Okay, so next Tuesday night you’re going to talk about Stansberry Portfolio Solutions, which is obviously an awesome product. Performed extraordinarily well recently, and since inception. And people are going to get like a free pick from Porter, and one from Steve, and one from Doc. Are they going to talk about anything else? Because those guys have views on all kinds of stuff; gold, and bonds, and all kinds of stuff.
Austin Root: Yeah, I’m looking forward to – I will be MC of sorts. I have a lot – a list of questions to ask them. They have great outlooks, and differing outlooks. I think it’s really helpful to hear different perspectives on the world.
As you know, Dan, Steve is still pretty bullish. He thinks that the market Melt Up continues, while at the same time Porter and Doc are a little bit – have a little bit more bearish views, or at least less bullish than Steve. So it’ll be great to compare and contrast those and talk with these guys about what they see in the year ahead.
I think I’m sure that politics may come in there, and maybe some outlooks on what the market could do under certain circumstances. So there’s a lot to listen for and get excited about on this event on January 14 at 8:00 PM Eastern.
Dan Ferris: Right, and you can sign up for it at www.investorhoursps.com. I’ll say it one more time, investorhoursps.com. And you should do it. It’s like three free picks, plus whatever Porter and Steve and Doc think about a whole bunch of other stuff. I mean I have to admit like, I shouldn’t say this, I normally I don’t watch all of the online things that we do. I watch some of them. No way I’m going to miss this because I want the three free picks too.
Austin Root: Yeah, for sure. I mean there is no downside. There’s you sign up, you watch the event, and if you don’t want to subscribe that’s no problem. At least you got the outlook from three of the wisest minds on investing for free.
Dan Ferris: Yeah, you can say that again. I mean certainly in recent years it kicked my ass, that’s for sure. So look, thanks for being here, Austin. I feel like I could talk to you for another hour, even if only to like pick your brain about every single minute you spent with all of those phenomenal investors you worked for, and working for yourself and everything. You just you’re like a trove of information that I wish I had.
However, we do have to move on and do other things, but before you go I ask all my interview subjects this same question. If you could leave our readers – I’m sorry, our listeners, who some of whom are readers, with one thought, what might that be?
Austin Root: Well, Dan, let me say first off it’s been a real pleasure. I love your podcasts, and this is great for investors and those interested in the market. It’s just phenomenal. One – just to clarify, this is one thought on the market, or just one thought on anything?
Dan Ferris: Anything. Anything at all.
Austin Root: Well, I am market focused, so will say this. I think it’s so important to know why you own something. So you need to do the – you need to know your goals, you know how to achieve them, but if you’re invested in something and the story changes, sell. Sell when the story changes.
Too many investors I see get focused on trying to change their investment thesis to hold on to that stock. No, don’t do it. You’ll be better for it. Your portfolio and you will be better for owning only things where you know the goals and you know why you own them, and not trying to change your goals and your thesis for when the story changes. Get rid of those.
Dan Ferris: Oh, that’s a gem. That’s a butte. Thank you for that. And I certainly hope that you will come back and talk to us soon. Sooner rather than later. We’d love to have you back.
Austin Root: That’s great. Yeah, for sure. Thanks, Dan. I appreciate it so much.
Dan Ferris: All right, I’ll be talking to you soon, Austin. Bye bye for now.
Austin Root: All right, take care, Dan.
Dan Ferris: All right, that was a lot of fun. I really could just talk to Austin forever because, like I said, he’s worked for all these incredible people, worked for himself, and he runs these portfolios and does a great job. And he obviously knows some things that I need to know.
So to listen to this event, which I highly recommend that you do. I mean we’ve never done anything like this. You go to investorhoursps.com and you sign up there. Do it right away. Sign up there because when it’s time for the event they’ll e-mail you and they’ll remind you.
So go to investorhoursps right away and sign up, and that way you’ll be assured of being reminded to get on the event, which three free picks, lots of other stuff that you never see, never get to see these guys live. It’s really different. We don’t do things like this normally. We normally we’ll record a presentation. It’s rarely all three of them together like that. I mean that never happens. So yeah, do it, investorhoursps.com right now.
All right, time for the mailbag. And your feedback, of course, is very important to the success of our show because this is where you and I get to have a conversation every week, isn’t it? You write in with comments, questions and politely worded criticisms to feedbackandinvestorhour.com. I read every single one of them, except for the Russian spam, and I try to respond to as many as possible.
Now this week, we actually had tons of feedback. I sort of took a few days off from checking the feedback, and you guys just kept writing in and it was awesome. And I believe I mentioned already in the program, two listeners recommended a book that I’m currently reading called Range by David Epstein that I highly recommend, among lots of other things that we’ll get to right now.
So let’s start with Denise E., and Denise E. says, “Hello, I am new to the Stansberry Research Group, and I’m delighted to find this weekly interview.” Well, there’s more than an interview, Denise. There’s all kinds of good stuff.
And she continues, “You may have covered this prior to my joining. I’m curious as to what the experts will say. When the meltdown occurs, where is a good place to move money to? I am wondering and particular if a money market makes sense until things level off. Is this as vulnerable as keeping in the stock market and riding out the storm? In the past I watched my 401k fall fast, and it has come back.”
“However, I would like to ride the wave and want to learn how to do this the best way I can. If I can move the money and then the meltdown happens, I will have more to invest when things start to bounce back than to lose it and wait for it to make gains.”
Oh, I see. I think what she means is I will have more to invest when things start to bounce back, than if she lost it and waited. And then she finishes up, “Could you have a weekly interview on this? If there is one available please point me to it. Thank you, Denise E.”
Well, we actually did touch on a lot of stuff in today’s interview that could really help you out. But, Denise, I have to tell you, what you’re suggesting that you could – what you’re suggesting here is basically that you could time the bottom, right? You’re saying, “When the meltdown occurs where can I move money to?”
Well, that implies that you’ll know that some little correction is going to turn into a full blown meltdown. Because you can’t wait until after it happens to move our money, right? So you have to move it before that happens, and that’s really hard. It’s really hard to time that. And the other thing that you’re implying, too, is that once the meltdown has occurred, that you will be able to time the reentry. It’s really, really, really hard to do that.
I can’t give you individual advice, but I will say that there’s a reason why my cautiousness has basically – the returns have been a little muted. I mean we’ve had some really great winners in Extreme Value. We picked Starbucks before anybody really got into it, and at one point I think we were up like 80% or something. I think we’re up about 69, 70% now in what, a year and not even a half. And it was like 80% real quick.
And, of course, some of our one gold pick has done really well, and some of our other ones have done pretty well, too. But overall we’ve gone kind of sideways, and I think we’re still holding some great long-term prospects, and we continue holding them even though they might be down five, 10, 15%. I won’t – I’m not selling them because I bought them for a long-term strategy, you see?
So if you start thinking the longer term, maybe it’ll help you get rid of this idea that you can time the market. Maybe you don’t want to get rid of that idea. Like I said, I’m not giving you advice. I’m just suggesting that it’s more likely that if you buy good companies for the long-term, and ride out these drawdowns, that you will do better over 10, 15 years or more than if you try to move really what Austin Root would call tactically, and move your assets to a money market.
Wait for a drawdown, wait for a bear market, or a 20, or 30, or 40% drawdown or something, and then move back in. That’s really hard. Really hard. I’m just going to have to leave it there because I can’t give you individual advice, but I hope that helps.
Next one is from Matt N. “Hey, Dan, thank you so much for your hard work. I’m a Stansberry Flex Alliance member and a loyal listener to the podcast. Andrew Yang,” democratic presidential candidate, “Andrew Yang is receiving attention from friends and family members, and the idea of universal basic income scares me. But after listening to him he’s quite convincing, and I would absolutely love to know your thoughts. Here’s an hour long -” oh, he points me to an hour long interview on YouTube about it. “Warm regards, Matt N.”
I normally don’t talk about politics, but it’s funny because I always say I normally don’t talk about politics. That’s how you know I’m going to talk about politics. Maybe I should stop saying I don’t normally talk. I make limited commentary about politics. But this whole idea I don’t think it would be a disaster, but it wouldn’t be great either. It would be – it’s the culture of larceny, right?
The idea is based on if I could just steal enough and redistribute it in the right way. That would be better than if we just have everybody pitch in a little bit of their annual income with no loopholes or anything, and build the infrastructure and the justice system and have a good society.
But this thing is based on this heavy-handed government idea that they should take 40, 50% of what you make if you make a lot. If you’re very productive they should steal plenty from the most productive, and then redistribute it with something like universal basic income, and that’s a genuinely stupid idea.
I think certain minority groups have had their nuclear family units absolutely obliterated by heavy-handed government interfering in their lives, right? They have just obliterated those nuclear family units, and it falls heavily on people of lower income groups, and certain minorities.
And I would even suggest that certain political factions over the past several decades have targeted these groups and decided that, “Well, we need to have strict, strong drug laws because we need to go after these people. We need to have strict gun laws so that these people in these poor areas don’t have guns because we don’t want them running their own lives.” And there’s plenty of evidence for this. Don’t write in and tell me there’s not because you’ll just be in idiot when you do that. There’s too much evidence for what I just said.
And this is part of that. Let’s – after we’ve targeted them let’s send them free money every year. The whole thing is a big scam, and it’s run by a bunch of jackasses who think that they’re better than you, they went to a good school, they know more than you, they’re better than you. They decide how much soda you can drink and how much everything you can do, right?
They want to run your life. They think they’re better than you. And if they ran society and stole enough money to get enough power to shove their ideas down your throat, everything would be great. I’m not saying any more about that.
Next one is from loyal listener Gary D. And he writes in and says he enjoyed the most recent big surprise episode, our episode last week where we talk about the big surprises of 2020. And he says "Happy New Year. I hope you enjoyed the holidays." But then he’s kind of – he knows I can’t give investment advice, but he’s asking a similar question.
He says, “Would you do one of the following, giving that you are perhaps expecting a pullback in gold.” He’s talking specifically about gold this time. “Would you hold on to your position, ride the up and down price action with the expectation that over the long run the overall direction will be upwards, or would you consider selling your positions at this peak and pocket the profits waiting for an opportunity to repurchase your positions at a better price later?”
“I know the second option is pretty much market timing as I’m sure you know. It’s hard to watch unrealized gains pile up and then disappear during these market cycles. Finally, I want to recommend a book that my oldest brother suggested to me. I’m really enjoying it and think you will too. Mark Kurlansky’s book, Salt, A World History. Who would have thought such a taken for granted commodity had played such a vital role in the development of the modern world? This is good reading and I hope you enjoy. Thanks for all your hard work for us. Until later," Gary D.
Thank you for the recommendation of Salt. I have read some of it. It’s been on my shelf for years, and I dip into it every now and then. Kurlansky has another really good book I read called Cod. I think the subtitle is something like The Fish That Changed The World. So Salt and Cod. Salt cod is a thing, right? So, makes sense. And they’re two really readable interesting books. I read Cod and I’ve read portions of Salt. Really good.
So thank you for that, but again, Gary, what you’re asking me it’s the same issue only it’s with gold. So what I didn’t say with the previous – with Denise was you have to decide what kind of investor you are. Are you a trader? Because if I was a trader and I was long gold in the 1,400s and it spiked up to 1,580, yeah, buddy, I’m selling. If I’m long gold futures or something you darn right I’m selling. But if I’m holding gold coins, I’m not selling. If I’m holding gold stocks, maybe. If I’m a trader and I got a good pop out of that I might sell. Might sell all or some of my position.
But this is like you and Denise both, you’ve got to think about what you’re about, and what you can tolerate emotionally. Maybe you just can’t tolerate those drawdowns. You mentioned it in your e-mail. You said, “It’s hard to watch unrealized gains pile up and disappear trough the cycles,” and gold is really volatile.
That’s another thing. Like are you the kind – you’ve got to ask yourself, am I the kind of guy who can hold gold? You know, gold stocks. Let’s just focus on gold stocks because that’s what I own mostly. Can I watch something go up 50%, back down so I’m only up – maybe I’m flat or down 10%, then I’m up 100%, then I’m only up 20%. Oh, then I’m up 300%. You know, can you watch that happen?
It’s hard. I can’t answer the question for you either. You have to answer it. So like I said with Denise, I hope that helps, but I really I can’t advise you. It is up to you. And not just because I’m not allowed to give investment advice, but it’s because I’m not you, right?
Got one more of these from Paul E. Paul E. says, “Happy New Year. I’m attaching an interview I found very interesting on CNBC.” And the name of the interview before I get the rest of his e-mail is Here’s What Seattle Learned From Hiking Minimum Wages. He says, “When you have five minutes I think it’s worth your time. It’s about the minimum wage increases in Seattle, Washington and the effects on three restaurants. The three restaurants reacted in different ways, but my takeaway is restaurant inflation is going up significantly. Here are a few headlines I took out of the interview to wet your appetite.”
And there are three headlines, one of them is, “This was the first time I raised food prices because of labor cost not food cost.” After the wage increases – this is number two, “After the wage increase my employees worked less hours forcing me to hire more people.” And headline number three from this same bit is, “I went to a commission strategy. His servers now make around $70 an hour. And he continues, “Really interesting information and counter measures. I know our federal inflation indicators exclude food, but wow, there’s some inflation in this story. Take care," Paul E.
Yeah, I’m glad you pointed this out, and I think people should go, “There’s a real lesson in this article, in this video.” I’m sorry, it’s an interview. And I don’t know if I need to add much more to it, but I would point out what you said, too, is that the federal inflation indicators they have like X food, and then excluding food and then excluding food and energy.
It’s like what do you buy like almost every day? You put gas in your car, or you make your way to work somehow, or you travel, you fly, whatever. You use energy and you heat your home, you light your home and you eat every single day. It’s like the two things that you spend money on every single day are left out of the inflation managers, and they’re going up, and up, and up.
So yeah, that’s ridiculous, right? And inflation is real. It just shows up in different places in different ways, though. It can be quite insidious. It shows up in the stock market, it shows up sometimes in the bond market. I mean, you know, negative interest rate bonds. I mean that looks like inflation to me because the prices are so inflated even though people will say it means the opposite, or implies that the opposite will happen soon.
So yeah, I encourage people to look for this CNBC link, here’s what Seattle learned from hiking minimum wages. Just because it’s interesting. Not that I have some big political view on minimum wage. I mean it’s a fact that when you make things expensive you get less of them, so none of what I saw in that article surprised me at all. People had to raise prices because of labor cost. They had to hire more people because people, “Oh, okay. I’m going to behave differently because I’m making more money.”
You know, none of this is a surprise. It’s all basic economics and it’s all this stuff that politicians ignore when they’re ramming their views down your throat and ruining it, this wonderful thing we have in this country.
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